NEW YORK (
(JPM - Get Report)
CEO and Chairman Jamie Dimon
said so many things during the bank's lengthy investor day last month,
that much of it appears to have gone unnoticed. Still, it is difficult to understand why the following statement did not get at least a bit more attention.
"If I were the dictator, I would want a government-guaranteed mortgage."
That's right, he really said that. It was about 30 minutes after he told CLSA analyst Mike Mayo, "that's why I'm richer than you" -- a statement that has elicited far more discussion.
Dimon made the "dictator" comment in response to a question about how he would reform the current system of housing finance, which leans very heavily on government support via
. Formerly only quasi-public entities, they have essentially functioned as arms of the government since being placed into conservatorship in 2008 by the Bush Administration. Politicians of all stripes say they dislike the status quo in mortgage finance, but no one dares offer a concrete proposal to change it for fear of being blamed if the fix doesn't work.
So give Dimon credit for sticking his neck out and proposing something. In some ways, there is nothing wrong with the soundbite I have extracted from his larger statement (which I'll get to in a moment). Those who read the "dictator" remark as an indication of Dimon's arrogance should not get too excited. No one, after all, is surprised to find arrogance in a CEO of a giant multinational.
Neither should we be shocked to hear an intelligent person -- Republican or Democrat, banker or Occupy Wall Streeter -- arguing the government must play a role in supporting the housing market.
After all, the government has subsidized housing in some fashion since at least the 19th Century, according to James Hagerty's book
The Fateful History of Fannie Mae.
The ability of homeowners to deduct mortgage interest payments from their taxes has been around for 100 years, which is as long as the federal income tax has been a permanent part of U.S. law.
U.S. government support for housing expanded when
was created in the 1930s as part of the New Deal, but it still took decades for Fannie to come to resemble the giant pillar of housing finance we know today. By 1981, Fannie was the fifth-largest company in the U.S. and it held about 5% of U.S. mortgages. That seemed remarkable at the time, but it looks quaint now.
"In the years immediately following the 2008 crisis, Fannie,
and the Federal Housing Administration were carrying the default risk on around 90 percent of all newly granted home-mortgage loans," according to Hagerty's book. Near-total government domination of the mortgage market remains essentially unchanged today, despite
distant glimmers of a private market revival for select mortgages
In other words, we shouldn't be surprised that Dimon wants the government backstopping mortgages. Such a system worked well for the U.S. for a long time, so it is a totally reasonable view.